HSCB set for £12billion share issue to prepare for recession

Banking giant HSBC is planning a £12billion share issue to shore up its capital reserves in preparation for a severe recession.

The bank has so far weathered the credit crisis better than its rivals and has avoided turning to the Government for a cash injection. But it has always been careful not to rule out raising cash from the market.

The cash-raising will boost its capital ratio - a measure of the cushion of cash held by a bank against surprise losses or falls in the value of its assets.

Prepared: HSBC is shoring up its capital reserves

The plans are being tweaked this weekend and the cash-raising could be launched as early as tomorrow alongside the bank's full-year results for 2008.

HSBC's figures are expected to show profits of about £15billion. Its share price has slumped 38 per cent over the past year, but its market value of £60billion still dwarfs the UK's other banks, which have already raised fresh capital.

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Royal Bank of Scotland has received £20billion from the State and is now 70 per cent Government-owned. Lloyds Banking Group, created by Lloyds TSB's takeover of HBOS is 43 per cent State-owned.

Lloyds' US-born chief executive hopes to keep that Government stake below 50 per cent while taking advantage of the latest Treasury scheme to help banks tackle toxic assets.

Lloyds is this weekend locked in talks with Treasury officials over the terms under which it could join the Government's asset protection scheme.

RBS put £325billion of assets into the scheme last week. The headline fee for the scheme --under which the Government will bear the vast bulk of any losses on the assets - was two per cent or £6.5billion. But RBS also agreed not to use its losses during the recession to cut its tax bill. This is expected to at least double the cost to RBS.

RBS will also issue the Government with £19billion of new 'B' shares. This has diluted existing shareholding and could see the State have a 95 per cent interest in the bank. The shares could command a dividend of seven per cent, meaning RBS would pay an extra £1.3billion a year to the government.

Lloyds is said to be concerned both about the State taking a bigger stake or becoming the majority shareholder and by the dividend it may have to pay the Treasury on any new shares.